AMC Plunges After Investor Warning—Sparking $10 Billion Selloff

Top line

After a nearly undiminished week-long run-up, AMC Entertainment’s shares tumbled along with a number of other recently resurgent meme stocks on Thursday morning after the company warned investors that its stock was massively overvalued, reflecting experts who are facing an impending correction .

AMC slumped up to 35% on Thursday while GameStop slumped 13%.

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Important facts

AMC stock soared up to 40% on Thursday, wiping out a $ 9 billion market value after the company announced it would raise cash by selling nearly 11.6 million shares at market prices while hitting the people in front of it warn not to buy its stocks unless you are willing to risk losing all your money.

At least twice on Thursday mornings, price volatility became so severe that the New York Stock Exchange ceased trading in AMC stock, a technique normally used to prevent erratic, sentiment-fueled market fluctuations.

Following AMC’s slump, shares of Bed, Bath & Beyond, which shot up 62% on Wednesday, fell as much as 26%, and GameStop, the best-performing Meme stock during its late January trading frenzy, fell almost 13%.

Even BlackBerry shares, which were up nearly 15% Thursday, fell 6% by late morning.

Despite the decline in stocks, there were outliers: Sundial Growers, a cannabis stock popular with Reddit retailers (and a short squeeze target in February), held on to Wednesday’s gains and rose another 15% on Thursday.

Update: Early Thursday afternoon, AMC announced that the offering had successfully closed and raised $ 587.4 million in new capital through the sale of shares at an average price of $ 50.85; the stock briefly made up for its losses thereafter, but ended the day 20% to $ 51.54.

Key background

Ever since AMC began its meteoric resurgence late last month, experts have been warning that a correction is inevitable but almost impossible to determine. In late January, when Meme stocks last crashed, it took about two weeks for AMC to bottom around 28% of its closing high on Jan. 27. However, the past few weeks have proven that wild price fluctuations sparked by the insistent sentiment on social media are more than just a fad, said Nigel Green, CEO of $ 12 billion wealth advisory firm DeVere Group. “This type of speculative day trading is becoming a global phenomenon,” he said in an email. Even AMC warned of the volatility in a regulatory filing on Thursday, saying, “Given the circumstances, we warn you not to get into [our stock]unless you are willing to take the risk of losing all or part of your investment. “

tangent

AMC on Thursday cited an oversupply of short rates, access to margin debt, options trading and bullish sentiment among retail investors as the reasons for current trading prices before warning that short squeeze-driven profits will be “bloated” would until the shorts wear off – something that led to a crash among so-called meme stocks in late January. AMC’s short interest is still near record highs, meaning the narrowness could successfully drive prices higher, according to the Ortex financial analyst platform.

Surprising fact

AMC’s shares are up more than 2,000% this year. That’s more than 20 times more than the top performing stock in the S&P 500, Marathon Oil. Other meme stocks have similarly stuck to their Reddit-fueled earnings, with GameStop up 1,400% and BlackBerry up 120%.

What to look out for

In a congressional hearing last month, Gary Gensler, the recently appointed head of the Securities and Exchange Commission, said the agency would release a report this summer detailing the issues raised by the recent trade madness. He suggested that regulators would introduce new rules against online brokers like Robinhood and eToro, which he said “gamified” investments “to get people to trade more”.

further reading

Not just AMC: these are the meme stocks Reddit traders are pumping again as pundits urge “extreme caution.” (Forbes)

AMC Sells Up To 11.6 Million Shares After 2,900% Soar, But Warns Investors Could Lose It All (Forbes)

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